Oil Prices Pull Back as US Holds Off on Iran

Source: Bloomberg

New Zealand's manufacturing sector expanded at its fastest pace in four years this December, providing strong evidence that the economy is heating up in response to lower interest rates.

The Performance of Manufacturing Index (PMI) climbed to 56.1, its highest reading since December 2021. The report, released by Business New Zealand and Bank of New Zealand, marks the sixth consecutive month the index has remained above the 50-point threshold that separates expansion from contraction.

Economic Momentum Gathers Steam

This surge in manufacturing suggests New Zealand's economy maintained its strong growth trajectory into the fourth quarter. The data follows a robust 1.1% increase in gross domestic product (GDP) during the three months ending in September.

Other recent reports reinforce this positive outlook. Filled jobs reached an eight-month high in November, while fourth-quarter business confidence soared to its highest level since 2014.

What's Driving the Manufacturing Surge?

The December PMI report revealed broad-based strength across all key components, which all rose to above-average levels. "The PMI is positive for fourth-quarter GDP calculations and points to good momentum heading into the new year," said Doug Steel, a Senior Economist at Bank of New Zealand (BNZ).

Key details from the report include:

• The new orders sub-index hit its highest point since July 2021.

• The production gauge reached a four-year peak.

• The measure for employment was the strongest recorded since April.

Steel noted that the sector's performance is being bolstered by solid fundamentals, including increased residential construction activity and strong primary sector exports. For context, the long-term average for the PMI is 52.5.

All Eyes on the Reserve Bank's Next Move

This string of positive economic data shifts the focus to the Reserve Bank and the future of monetary policy. The central bank has already cut its Official Cash Rate by 325 basis points since August 2024 and has signaled that its easing cycle may be complete.

The renewed strength in manufacturing and business confidence introduces the risk of an interest rate hike later this year to manage the expanding economy. According to swaps data, investors are now pricing in a 57% probability of a quarter-point rate increase by September.

Senator Lindsey Graham has publicly called for a more significant military response against Iran, expressing disappointment after President Donald Trump refrained from ordering a large-scale attack. The decision to hold back came after senior officials advised the president on the potential risks and logistical challenges of a major strike.

White House Advised Against Large-Scale Military Action

According to a report from The Wall Street Journal, President Trump was cautioned that a major military strike against Iran was unlikely to topple the government and could instead ignite a broader regional conflict. U.S. officials reportedly informed the president that before launching a large-scale attack, the U.S. would need to deploy more military assets to the Middle East. These resources would be necessary not only for the initial strike but also to protect American forces and allies like Israel from potential Iranian retaliation.

Advisors also noted that by the time of the briefing, the streets in Iran had largely quieted, with Iranian security services re-establishing control over the protests. Tehran's leadership had also pledged to avoid executions, signaling a de-escalation of the internal crackdown.

Despite holding off on a final decision, President Trump instructed military planners to have assets ready in case he ordered a major attack. "The president and his team have communicated to the Iranian regime that if the killing continues, there will be grave consequences," said White House press secretary Karoline Leavitt. She added, "Only President Trump knows what he's going to do and a very, very small team of advisors are read into his thinking."

Graham's Push for a More Aggressive Stance

In response to the administration's restraint, Senator Graham made his preference for a more forceful approach clear. Journalist Ryan Grim commented on a video of the senator, observing that Graham's "life force is being drained in front of us by the lack of bombing."

Senator Lindsey Graham expressed his view that the U.S. should take a more aggressive military stance against Iran.

Speaking to reporters on Thursday, Graham stated, "Should it be bigger or smaller? I'm in the camp of bigger. Time will tell." He also asserted that "the regime's days are numbered."

US Imposes New Sanctions Amid Restraint

While a military strike was put on hold, the U.S. moved forward with economic measures. On Thursday, the administration imposed sanctions on five Iranian officials accused of orchestrating the crackdown on recent protests.

The U.S. Treasury Department announced it was targeting the Secretary of the Supreme Council for National Security, along with commanders in the Islamic Revolutionary Guard Corps (IRGC) and other law enforcement forces. The statement accused these individuals of being the architects of the government's response to demonstrators. The U.S. also stated it was tracking funds belonging to Iranian leaders that were being wired to international banks.

These new sanctions add to Iran's existing economic challenges, which are unlikely to improve in the near future and could contribute to further instability.

A Plan to Overhaul a Major Power Market

The Trump administration and governors from several Northeast states are preparing an unprecedented intervention into the nation's energy markets, aiming to make technology giants pay for a new fleet of power plants.

A "statement of principles" expected Friday will call on PJM Interconnection LLC, the country's largest grid operator, to hold an emergency power auction. This initiative, backed by President Donald Trump's National Energy Dominance Council and the governors of states like Pennsylvania, Ohio, and Virginia, represents a direct response to the massive electricity demand driven by data centers.

Under the proposal, PJM would be urged to conduct a reliability auction offering 15-year contracts for new electricity generation. An unnamed White House official stated that if the plan is implemented, it could generate contracts supporting the construction of approximately $15 billion worth of new power facilities.

Data Center Power Surge Puts Grid Under Pressure

The core issue is that electricity demand in the region managed by PJM, which serves over 67 million people from the Midwest to the Mid-Atlantic, is rapidly outpacing supply. This initiative seeks to resolve the growing tension over how to power the data centers essential for the global artificial intelligence race without raising utility bills for American households.

The administration's plan directly targets the tech companies and "hyperscalers" building these power-hungry facilities, giving them a chance to bid for the long-term contracts that would fund new generation.

Political Tensions Rise Over Electricity Bills

President Trump has consistently argued that tech companies building data centers should finance the power infrastructure required to run them. On Monday, he reiterated this stance in a social media post, insisting that these companies must "pay their own way."

"I never want Americans to pay higher Electricity bills because of Data Centers," Trump said.

This policy push comes as cost-of-living issues feature prominently in the lead-up to the November elections. While the administration has highlighted falling oil and gasoline prices, rising electricity costs are fueling a backlash against the data centers seen as a primary driver of the demand surge. The initiative is a direct attempt to shift the financial burden of grid expansion away from consumers and onto the tech industry.

Nationwide protests against Iran's government appear to have been largely suppressed following a severe crackdown by authorities. After shutting down internet access, the government's response has resulted in what activists report as at least 2,637 deaths, prompting new international sanctions and escalating regional tensions.

Tehran Quiets as Authorities Solidify Control

In the capital, Tehran, the visible signs of unrest have faded. Witnesses report that the bonfires and street debris common in recent days are gone, and the once-intense sound of gunfire has subsided.

Meanwhile, state media continues to announce waves of arrests, labeling participants as "terrorists." Authorities are also reportedly searching for Starlink satellite internet dishes—the only remaining channel for protesters to share videos with the outside world.

Justice Minister Amin Hossein Rahimi underscored the government's hardline stance, stating that "anybody who was in the gathering since Jan. 8 is a criminal," according to the judiciary's Mizan news agency. State media has also broadcast reports detailing damage to hundreds of buildings, vehicles, and several heritage sites, framing the protests as a "terrorist operation."

U.S. and Europe Escalate Sanctions Pressure

In response to the crackdown, the United States has imposed new sanctions on Iranian officials accused of suppressing the demonstrations. The move was echoed by its allies, with both the Group of Seven (G7) industrialized nations and the European Union signaling their intent to increase economic pressure on Tehran.

EU chief Ursula von der Leyen confirmed the 27-nation bloc was exploring stronger sanctions "to push forward that this regime comes to an end and that there is change." The U.S. also requested an emergency meeting of the U.N. Security Council to address the situation in Iran.

Regional Tensions Flare Over Airspace Closure

As Iran works to control the domestic situation, it is also signaling concern over external threats. Early Thursday, the country shut down its airspace for over four hours without explanation, forcing international flights to reroute. This action is consistent with past moves during periods of heightened military tension, such as conflicts with Israel.

In response, the Israeli military raised its readiness level for potential missile attacks.

The airspace closure heightened safety concerns for civil aviation. The website SafeAirspace noted that most carriers were already avoiding Iranian airspace, citing "the risk of missile launches or heightened air defense, increasing the risk of misidentification of civil traffic." This warning recalls the tragic 2020 incident when Iranian forces shot down Ukraine International Airlines Flight PS752, killing all 176 people on board.

Other countries also took precautions: the U.S. relocated some personnel from Qatar's Al Udeid Air Base, and Britain closed its embassy in Tehran, withdrawing its staff.

Conflicting Signals on Diplomacy and Executions

The international standoff has been marked by mixed signals. U.S. President Donald Trump first suggested "help is on its way" to protesters but later signaled de-escalation, claiming to have received assurances that executions would stop. White House Press Secretary Karoline Leavitt clarified that 800 executions had been planned and warned of "grave consequences" if they proceeded, reiterating that "all options remain on the table."

In response, Iranian Foreign Minister Abbas Araghchi publicly appealed for a diplomatic solution. "Between war and diplomacy, diplomacy is a better way," he told Fox News, while activists warned that hangings of detainees could be imminent. The slight easing in rhetoric may be linked to lobbying from Middle Eastern governments, who reportedly urged the Trump administration to avoid military action that could trigger a wider regional war.

Despite the diplomatic maneuvering, the human cost of the crackdown remains a central focus. The U.S.-based Human Rights Activists News Agency reported the death toll has reached at least 2,637—a figure that surpasses any unrest in Iran since the 1979 Islamic Revolution. While the organization has a track record of accuracy, the number has not been independently verified by news agencies like the AP, and the Iranian government has not released its own casualty figures.

The United Kingdom is launching a business center in Kyiv this year to streamline the flow of military hardware from British defense startups to Ukraine. The new hub will focus on accelerating the delivery of critical equipment, particularly air-defense systems and drones, as the war with Russia continues.

Easing Logistics for UK Defense Innovators

This center is designed specifically to help small and medium-sized British companies. These firms often struggle to operate in Ukraine due to significant logistical and security hurdles.

The initiative aims to provide a physical base and support system to help businesses navigate travel restrictions, security protocols, complex insurance requirements, and export challenges. By removing these barriers, the UK hopes to get vital technology to the front lines more efficiently.

A Strategic Push Amidst Stalled Peace Talks

The move comes as diplomatic efforts to end the conflict have yet to produce a clear path to peace. In response, European allies are bolstering their support for Kyiv. This includes a €90 billion ($105 billion) loan from Brussels and efforts by UK Prime Minister Keir Starmer to secure security guarantees from the United States.

UK Defence Secretary John Healey told Bloomberg that the new center is intended to "supercharge" the role of British industry in sustaining Ukraine's military capabilities. "This facility will deliver good jobs at home and bring Ukrainian and UK defense industries closer than ever while embedding the lessons from the battlefield," he said.

Rupert Pearce, the UK's new national armaments director, echoed this sentiment, linking economic activity to national security. "This center will enable British companies to partner with Ukraine and deliver the defense solutions they need now," Pearce noted.

The UK-Ukraine 100-Year Partnership in Action

The launch of the Kyiv hub marks the first anniversary of the UK-Ukraine 100-Year partnership, a long-term agreement aimed at deepening defense cooperation between the two nations.

One of the partnership's flagship projects is the joint mass production of the Octopus interceptor drone. This system is designed to combat the Shahed unmanned aircraft that Russia frequently uses to target civilian and energy infrastructure. The UK has pledged to produce thousands of these interceptor drones for Ukraine each month.

The Ministry of Defence confirmed that the Kyiv business center will be backed by government funding, although a specific amount has not been disclosed.